Yen drifting ahead of BoJ minutes

The Japanese yen has started the week on a flat note. Currently, USD/JPY is trading at 103.82, up 0.05% on the day.

BoJ minutes in focus

The Bank of Japan will release the minutes of the December policy meeting later on Monday (23:50 GMT). There were no surprises at the December meeting, so the minutes could follow the trend and have little impact on the markets. Still, investors will be interested to know what policymakers think of the health of Japan’s economy.

As for the Japanese government, their assessment of economic conditions remains grim. On Friday, the government’s monthly report stated that conditions remain severe, although there were some bright spots, such as capital expenditure and the housing market. The resurgence in Covid-19 has prompted government officials to put some 60% of the country under a state of emergency, but this measure is much less restrictive than the lockdowns we have seen in Western countries. Still, the emergency measures have dampened the services sector and consumer spending.

With the global economy starting to find its footing, Japan’s key export industry has been expanding. China is a huge trading partner, and stronger demand in China has led to a rebound in Japanese exports. However, weak domestic activity has meant very low inflation. The Services Producer Price Index has recorded back-to-back readings of -0.6%, and the same is expected in upcoming release (23:50 GMT). The BoJ’s preferred inflation gauge, BoJ Core CPI, will be released on Tuesday (5:00 GMT). The index hasn’t registered a gain since May. Later in the week, we’ll get a look at Tokyo CPI, which has reeled off five successive declines, with a forecast of -0.6% projected. Clearly, a lack of inflation remains a huge problem, with policymakers proving unable to rectify a situation which has festered for years.

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USD/JPY Technical Analysis

The weekly support/resistance levels are fairly close together:

• USD/JPY is facing resistance at 104.13. The next resistance line is at 104.49
• The 100-day moving average (MA) is situated at 104.52
• There are support levels at 103.37 and 102.97

inflation